Question $4$

$10$ Points

Icon, Incorporated produces a variety of products that carry the logos of teams in the Fortified Football League $($FFL$).$ The company recently paid the league $$85,000$ for the rights to market a popular player jersey and immediately began production. The following information is available:

Number of jerseys manufactured: $25,000$

Cost of jerseys manufactured: $$625,000$

Amount of manufacturing costs paid to$-$date: $$410,000$

Number of jerseys sold to$-$date: $0$

Estimated future marketing costs: $$300,000$

Anticipated selling price per jersey: $$42$

The FFL is about to file a lawsuit to stop jersey sales and is demanding another $$50,000$ from Icon for the manufacturing rights $($paying this additional fee can save future marking costs of $$20,000).$ Conversations with lcon's attorneys indicate that the league has a strong case and is likely to win the suit. If this situation arises, Icon will be unable to recover any amounts paid to the FFL$.$

Required:

Icon's sales department anticipates very strong demand and a sellout of all jerseys manufactured.

Determine the overall profitability of the jersey product line if Icon settles the disagreement with the FFL and the anticipated sellout occurs.

Should the company pay the additional $$50,000$ demanded by the league or should the jersey program be dropped? Show computations to support your answer.

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